Briefly: In our opinion, short (full) speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view.
The precious metals sector moved lower yesterday and it seems that the last week of trading this year will result in lower prices. Can we expect the same in the coming weeks as well? Let’s move right to the charts (charts courtesy of http://stockcharts.com).
Silver declined only 6 cents yesterday, but that’s quite normal – silver is known to quite often move very sharply, but also to trade more or less sideways for days (before moving sharply once again). Silver’s performance yesterday didn’t invalidate anything that had happened previously, so our recent comments remain up-to-date:
(…) the decline materialized on relatively high volume, so it seems that it is indeed the true direction in which the market is now headed. No wonder – silver just bounced off the major declining resistance line that we discussed in yesterday’s alert and that we featured on the long-term silver chart.
Gold declined more visibly yesterday and the decline took place on relatively high volume. The implications are bearish and we can say the same about the implications of the sell signal from the daily Stochastic indicator.
We still can’t rule out a corrective, temporary move higher toward the rising blue line and the 50-day moving average (at about $1,090), but it seems more likely that a big decline will follow even without another small rally.
Gold stocks declined – the 50-day moving average seems to have once again stopped the rally. The main medium-term trend remains down and once the current (August – today) consolidation ends, we’ll likely see another major downswing. It seems likely that it will happen relatively soon, very likely within the next few weeks (possibly days). The technical trigger for the plunge would be a confirmed breakdown below the September low. The HUI Index is not far from this level and it could be easily broken in a day or 2 if gold slides.
In the previous alert we wrote the following:
The USD Index moved once again lower, but didn’t move visibly below the 50-day moving average, the 38.2% Fibonacci retracement level and the index remains visibly above the rising support line. Based on the latter, the possible downside seems very limited. Consequently, it seems that the short-term upside for the precious metals sector is limited as well.
The USD Index moved right to the mentioned rising support line. Consequently, it’s unlikely that it will move even lower (visibly lower, that is) and the implications are bullish for the USD. The implications for the precious metals market are bearish.
The above remains up-to-date. The downside is limited and the implications of the situation in the USD Index are bearish for the precious metals sector.
Summing up, the medium-term outlook remains bearish and the short-term outlook deteriorated a bit based on yesterday’s price and volume action.
In our opinion, we are in a similar situation to what we saw in mid-August 2014, in mid-June this year, or in the final part of 2012. If the major move that is going to follow is to the downside, then a daily or relatively small upswing is not that relevant - it’s most important not to miss the big move and thus the speculative short position seems to be justified from the risk/reward perspective. It seems that the current speculative short position in the precious metals sector will prove very profitable in the following weeks even if it will not be the case for the next few days. After all, our target of $960 in gold is well below the current market price and if the analogy to the 2013 slide is indeed in place, then we will likely not have to wait long before this level is reached.
The upcoming year will likely start with major events in the precious metals world and paying extra attention to this market for the first few months should prove well worth it.
As always, we will keep you – our subscribers – updated.
Finally, on behalf of the entire Sunshine Profits Team, I would like to thank you – our subscribers – for your support this year and wish you and your families all the best in the New Year!
To summarize:
Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels:
- Gold: initial target price: $973; stop-loss: $1,107, initial target price for the DGLD ETN: $117.70; stop-loss for the DGLD ETN $81.84
- Silver: initial target price: $12.13; stop-loss: $14.83, initial target price for the DSLV ETN: $101.84; stop-loss for DSLV ETN $57.49
- Mining stocks (price levels for the GDX ETF): initial target price: $10.23; stop-loss: $15.47, initial target price for the DUST ETF: $31.90; stop-loss for the DUST ETF $10.61
In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:
- GDXJ ETF: initial target price: $15.23; stop-loss: $21.13
- JDST ETF: initial target price: $52.99; stop-loss: $21.59
Long-term capital (our opinion): No positions
Insurance capital (our opinion): Full position
Plus, you might want to read why our stop-loss orders are usually relatively far from the current price.
Please note that a full position doesn’t mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks – the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGLD, DGLD, USLV, DSLV, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DGLD for instance), but not for the “main instrument” (gold in this case), we will view positions in both gold and DGLD as still open and the stop-loss for DGLD would have to be moved lower. On the other hand, if gold moves to a stop-loss level but DGLD doesn’t, then we will view both positions (in gold and DGLD) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the sings pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels on a daily basis for the most popular ETFs, ETNs and individual mining stocks.
Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Additionally, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.
As always, we'll keep you - our subscribers - updated should our views on the market change. We will continue to send out Gold & Silver Trading Alerts on each trading day and we will send additional Alerts whenever appropriate.
The trading position presented above is the netted version of positions based on subjective signals (opinion) from your Editor, and the Tools and Indicators.
As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.
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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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